HUMAN RESOURCE OUTSOURCING
The productive capacity of all business depends on three factors: the capital resource,
the physical resource and the human resource” -(Peter.F.Ducker)
This statement holds a lot of significance because of the fact that of all the three
resources, only the human resources possess the productive capacity for which the upper limits
are not defined. So in order to utilize the true worth of the employees to its fullest, one need to
outsource the non-core activities of the organization. Business Process Outsourcing has become
new mantra in the corporate business world. Modern as well as traditional organizations are now
trimming down their employees from their payroll, and thus Human Resource Outsourcing
(HRO) is slowly becoming the new buzzword. In order to utilize the true worth of the employees
to its fullest, one must outsource the non-core activities of the organization. The awareness of
this has already been realized by the organizations. Outsourcing has no longer the privilege of
only huge multinational organizations. Even the public sector and government undertakings as
well medium size or start-up companies are also in the race of outsourcing their many HR related
activities.
Outsourcing can be defined as the situation where an external vendor or service provider
provides, on a recurring basis, services that would normally be performed in-house by the
organization. In other words it can said that, outsourcing is a process where in organizations
concentrate on those aspects of their business processes, which gives them a competitive
advantage (called as core business) and contract out or shell out the noncore aspects of their
business processes. With the increasing global competition, organizations are looking
outsourcing as a means of gaining a comparative advantage over other competitors. Outsourcing
is thought to benefit a business by allowing an organization to focus on its “core competencies”
or “core processes.” In this way, an organization can divert its energy away from peripheral or
non-core activities of the business which lies outside of its “true” area of expertise, and instead
of that concentrating more energy and focus on what it can does well in order to differentiate
itself from other competitors. By outsourcing their noncore activities, organizations would be
able to reduce their operating costs too. This is possible by reaping the benefits of a supplier’s
lower cost structure, which could result from economies of scale or other advantages associated
with specialization available with the outsourcing service provider. Human Resource
Outsourcing market is growing very rapidly. Experts believe that in present times HRO is
undergoing a transition phase. It is moving out from the realm of bigger companies to small and
mid-sized organizations.
Functions of HR outsourcing
HR outsourcing generally happens in the areas like payroll, employee benefits
administration, network, fixed assets administration, receivable and logistics management,
hardware maintenance, telemarketing, call centers and database management. HR outsourcing
continues to grow in the future in the areas of leave management, learning and development,
payroll, recruiting, health and welfare, and global mobility.
HR outsourcing Suppliers
There are three types of HRO suppliers
• Specialists in discrete sub processes of HR like payroll, benefits, hiring and recruiting,
and training and education.
• One-stop-shops that aggregate multiple HR functions into one HRO offering
• Super-suppliers with worldwide processing facilities offering full service at lower cost.
They take advantage of economies of scale.
Drivers of Human Resource Outsourcing
Much of the literature available on outsourcing in general has examined the rationale
behind such decisions. The key considerations behind HRO being the need for increased
focus on core business, cost reductions; greater business flexibility and need for specialized
expertise HR outsourcing is sometimes driven by the evolution of the HR function within the
Organizations. But outsourcing in few organizations is confined to administering compensation
and benefits, record keeping, and applicant screening. Cost reduction has been the predominant
motive for outsourcing Third important reason is improving service quality. Not only external
customers need to be satisfied for successful business operations but internal customers too play
a vital role and thus they also need to take care of. By improving service quality, HR
professionals can help organization to satisfy their employees.
Drawbacks or problems of HRO:
One of the problems with HRO is difficulty in accepting the change by the employees of the
organization. There is also anxiety about losing control over the process and lay off. Such
employees reactions generally create difficulty in outsourcing. This resistance will be higher
when more scope is added later. Effective communications and change management programs
(OD initiatives) are especially crucial at this stage when the new scope involves implementing a
self-service platform. Actually such systems are not intuitively obvious. Employees need to be
helped to adopt to this the new system. Also there are various risks associated with HRO. One of
such risk is the business risk which may arise due to cheap outsourcing contracts. There is also
spillover risk, i.e. exposing of confidential matters to competitors. Political risks is another issue
in outsourcing. Another problem in HRO is that sometimes it brings threat to the organization
culture and it gets totally out of control if gone into the hands of unsympathetic outsourcers. Also
vendor organization should be well aware with the laws and should act in compliance with laws
of his and client’s country otherwise legal issues may crop up and may adversely affect
organization. One more problem that arises is the loss of personal touch with the employees.
Because an in-house HR person interacts daily with your employees, they will likely have
more of an interest in your employees. The loss of talent generated internally, potential
redundancies, fear of service provider ceasing the trade, loss of concentration on customer and
more focus on the product are other drawbacks or challenges of HRO. Vendor selection is
another major issue in outsourcing HR. If we select the wrong vendor, then we won’t be able to
enjoy the fruits as expected from HRO.
What Should Companies Do To Have Successful HR Outsourcing?
Drawbacks can be compensated if an organization takes necessary precautions of paying
more attention to process redesign and details, and at the same time keeps strategic parts of HR
like Human Resource Planning in-house, as it revolves around critical activities and core
capabilities and thus provides sustainable lead in the long run. This is the reason why HR
activities like payroll processing is generally outsourced since it provides less competitive
advantage and is a non-core activity for any organization. Thus there is need to create a balance
between external service providers and internal operators Organizations need to outsource their
HR activities as per their size. Small and midsized organizations should outsource HR activities
like payroll because they may lack economies of scale to perform that function efficiently. Large
companies should outsource HR activities like benefit processing because broader range of
benefits are offered which reduce the economies of scale of handling the activity in-house. In
case of multi-supplier situation, good governance, change management, and effective dispute
resolution structure need to be in place. It should be ensured by the organizations that all the
parties should work together nicely. However long-term contracts can be avoided as things are
changing rapidly. Since outsourcers are the third party, communication travels three ways rather
than two ways involving organization, vendor and employees, giving room for mistakes. In such
case communication plays a very vital role.
Conclusion
Though there are many benefits of HRO, which cannot be denied but at the same time we
need to address various challenges of HRO. One has to take lot of precaution while planning for
outsourcing their HR activities. It was also observed that in the recent times outsourcing has
undergone lot of advancement due to increased data security because of new technology and
changing perception of what can and cannot be outsourced but security issue still demands
attention i.e. how comfortable are buyers with having their proprietary data being transmitted
offshore. Also suppliers need to evolve additional metrics that aren't transactional in nature
and that measure more strategic value like workforce productivity, absenteeism rates, and
employee turnover. Off shoring HRO is booming and this is good sign for country like India, but
suppliers need to address several issues to maintain this momentum. HR Outsourcing must also
be carefully evaluated and weighed against issues such as control, the strategic value of
technology to the organization, staffing, responsiveness/ accountability, and, of course, overall
costs. If organizations have a broader perspective and are taking corrective measures before
going for HRO then outsourcing will certainly help in coping with the peaks and troughs
of the business. Properly applied, including concerns, outsourcing offers many benefits;
otherwise, it offers even greater risks.
